Monday, 17 April 2017

The Issue of Bank Branch Closures: Should the Continuation of Bank Branches Be Enforced?

Today’s post is concerned with the
issue of banks closing their physical branches up and down the U.K., which has
recently led the Shadow Chancellor John McDonnell and other politicians to call
for an end to what is being described as an ‘epidemic’ of bank branch closures –
McDonnell has pledged that Labour will tackle the issue by only permitting
branches to be closed only after extensive
consultation and the gaining of permission from the Financial Conduct Authority,
should they win the next General Election. However, this post will examine the
issue from the obvious point of the need to keep branches open, but also from
the point of view of whether it is right, or indeed appropriate to force
private companies to operate in a manner which benefits the public but not
their own profit margins.

The obvious issue is in relation to
the availability of banking services, and crucially of financial advice, to
people who are deemed to be ‘vulnerable’ i.e. the elderly or the financially uninformed.
This takes us back to an important
post in Financial Regulation Matters
were we discussed how the Government are apparently embarking upon a push to
increase the amount of financial education within society, as demonstrated by
the establishment of the ‘Financial Exclusion Committee’. In line with the
ethos of the Financial Exclusion Committee, the ‘Campaign for Community
Banking Services’ has noted that the issues of access to financial
services, sustainability of communities, and environmental damage (through
increased travel to branches further afield) are all knock-on effects of the
increased rate of branch closures. In essence, we have a governmental push to
increase financial literacy and support at the same time that the most visible
source of that support is being withdrawn, which is the main source of
criticism from onlookers. However, what of the arguments of the banks in
radically changing the culture of the country and its communities?

The issue of what is expected of
the banks can be neatly categorised by the economic and regulatory studies of
so-called ‘public goods’. ‘Public Goods’, in the economic sense, are ‘things’
that are provided for the public, and contain certain characteristics.
Essentially, a ‘pure’ public good has both ‘nonrival’ and ‘nonexludable’
properties, meaning that the good can be consumed by one person without
reducing the availability of potential consumption by another (nonrival) and
that the good is free to all (nonexcludable). The study of this phenomenon can
be found in the field usually termed as ‘Public Choice’, but for our purposes
an interesting discussion can be found in this
interesting blog post by June Sekera. However, the term is often (and in
this author’s opinion misguidedly) used interchangeably, alluding to a
provision of a service as contributing positively to society (a better term could
be used for this). Banking, on both
sides of the Atlantic, is often
perceived to be a ‘public good’, and this can be demonstrated by the consistent
references to providing for a community. Yet, what we expect of a private, or
indeed public company, is often alluded to, and herein lies the issue. Banks, particularly
under Right-wing governments, are considered to be purely private institutions
whose affairs the state cannot interfere, unless some illegal transgression has
been committed. McDonnell, in representing the Left-wing, confirms that the
Labour Government would actively interfere in the organisational procedures of
private institutions, which is not particularly surprising knowing what we know
about the main political parties. However, there has been little discussion as
to why the state should interfere, or
not, it has just been assumed that one’s political outlook will decide one’s
views. There is, however, another way of assessing the situation.

In the early 2000s, the leading
banks took conscious efforts to defraud investors, engage in a systemic
degeneration of ethics and standards, and ultimately put society at great risk,
all because of one widely-held understanding – they were too-big-to-fail.
Companies such as RBS in the U.K., and Bank of America in the U.S., understood
that whatever happened, the state could
not let them all fail. We know
now that this was understood, and ‘too-big-to-fail’ has made it into common
parlance as a result. Therefore, rather than the societally-dangerous reasons
underpinning the Right-wing viewpoint of leaving business alone, absolutely,
and the Left-wing approach of interfering in private business, it is better to
understand it in these simple terms: relying on the public as a parachute intrinsically makes that company liable
to consider the public more than companies that do not. The work of the
Financial Exclusion Committee has confirmed that there is a desperate need to
increase financial education and face-to-face support, and as such the leading
banks, particularly those that have directly benefited from the public fisc, must take an active role in meeting this
required demand. Whether that means reducing the rate of branch closures can be
debated, but there must be an effort to meet that demand – it is not enough,
like RBS have done (a major beneficiary of public bail outs) to simply claim
statistics as the reason for increased closures. Banks do not fulfil the
requirements of the ‘public good’ designation on a number of accounts, but like
the Financial Crisis seemingly changed the parameters in favour of the banks,
it can now be brought back around to favour the most vulnerable in society. It
is important that political bias does not interfere with this alteration, but
that we simply adhere to the notion that everything has a price that must be
paid – interest payments on bailouts are not enough for irrevocably changing
the parameters of society.

No comments:

Post a Comment

Contributions are welcome to this blog. If you would like to contribute regarding any area of financial regulation, then please feel free to email me and submit your blog entry. The content should be concerned with financial regulation, and why it matters, but this is broadly defined. The blog is open to all who are professionally concerned with financial regulation, which may range from an Undergraduate Student interested in writing on the subject, to Professors and industry participants.